3 Energy Stocks That Are Lean, Mean, Dividend Machines

Image source: Simon Cunningham/Flickr.

What does it take for a company to offer shareholders a dividend? Strong profit margins, a healthy balance sheet, and long-term growth opportunities that give management and shareholders peace of mind that income won't be lumpy, unpredictable, or at risk of being axed on a whim. But let's be honest: there are companies that pay dividends, and then there are lean, mean, dividend machines. Companies that can be labeled as the latter are accompanied by a long history of dividend payments and increases and usually have a solid stream of earnings coming their way year after year.

If you're looking for new ways to generate income, then you may want to consider these three energy stocks that double as dividend monsters.

: At the end of 2014 Wall Street analysts worried that falling oil prices would have devastating consequences for The Dow Chemical Company , which would have threatened the company's 2.8% dividend at the time. After all, the company manufactures millions of tons of petrochemicals every year, so it's easy to see how lower oil prices could result in lower selling prices for the goods it produces. Management stomped out that idea on the most recent conference call, reminding analysts that lower oil prices also lower the company's production costs. When coupled with the demand boost spurred by lower prices, Dow Chemical expects the current environment to be a net positive for the company and its shareholders.

That sentiment was echoed by management's decision to raise the quarterly dividend to an all-time high payout of $0.42 per share. But it gets better. Dow Chemical is coming off a record year of performance in which it set new highs for annual EBITDA, annual cash flow from operations, and value returned to shareholders, among other benchmarks. Its manufacturing facilities are operating at multi-year high utilization rates, which will increase output and lower production costs, therefore boosting margins.

Now, on top of that, the company is bringing new products to market and opening doors to new manufacturing facilities that are expected to add over $3.7 billion in annual EBITDA by 2017. That would represent a 40% increase over full-year EBITDA achieved in 2014. Throw in the fact that shares have yet to fully recover from the unfair "guilty by association (with oil)" punishment handed down by Mr. Market at the end of last year, and investors could be presented with a great opportunity to own an income-generating machine.

: NextEra Energy is not your average dividend stock. Utilities are known for their ability to dole out dividends, turning regulated earnings into cold hard cash for investors. But rather than sit back and watch its revenue inch slowly and steadily higher, NextEra Energy is expanding and reinventing its role in America's energy portfolio.

The company's regulated utility, Florida Power & Light, provides the sort of steady sales and earnings that dividend stock investors love. For fiscal 2014, the company saw 1.3% retail sales growth, well beyond Duke Energy Corporation's0.1% decline.

But it's the company's powerful efforts beyond power sales that makes it a stand-alone dividend stock. NextEra Energy is one of the most stable renewable energy investment opportunities around. It owns 107 wind farms across North America capable of generating 11,300 MW of electricity. It also operates 785 MW of solar facilities, including the 550 MW Desert Sunlight Solar Farm. Co-owned with solar stalwart First Solar, it's the world's largest operational solar plant in existence.

NextEra Energy currently offers a 2.8 % dividend yield, which is smaller than around 80% of other utilities' offerings. But NextEra takes its distribution seriously, and has consistently increased payouts in line with its benchmark-beating stock price boosts.

NEE data by YCharts

The company announced earlier this month that its next quarterly dividend will be a 6.2% boost over last quarter. If NextEra's historical payouts and progressive outlook are any indication, it won't be the last time dividend stock investors get a piece of NextEra's profit pie.

: One company that has become an absolute dividend machine is Kinder Morgan . After consolidating its publicly traded MLP affiliates late last year, the combined company has morphed into an energy infrastructure behemoth. Further, as part of that transformation it's now better able to grow its dividend, which it expects to grow by 10% per year through the end of the decade. That's because the payout is anchored by rock-solid revenue and a visible backlog of growth projects.

The company's rock-solid revenue comes from owning and operating energy infrastructure. Kinder Morgan operates what is basically one of the largest energy toll roads in North America, as it makes money as energy passes through its pipelines and storage facilities. Further, because its customers are contractually obligated to use its assets, Kinder Morgan makes money even if the contracted capacity isn't used, and it makes the same amount no matter the price of the oil and gas it transports and stores. These contracts have locked in 85% of the company's earnings in 2015, while 94% of its total earnings are either contractually obligated or locked in through commodity price hedges.

While those contracts secure the company's base dividend, Kinder Morgan's backlog secures its growth. The company currently has a $17.6 billion 5-year contracted project backlog, with 90% of that backlog secured through fee-based contracts. What this means is that the company knows were its growth is coming from, as it simply needs to finish its projects on time and on budget in order to deliver its planned dividend growth.

The bottom line here is that with a rock-solid current yield of 4.3% and visible 10% annual dividend growth, Kinder Morgan truly has become a dividend machine.

The article 3 Energy Stocks That Are Lean, Mean, Dividend Machines originally appeared on Fool.com.

Justin Loiseau has no position in any stocks mentioned. Matt DiLallo has the following options: short January 2016 $32.5 puts on Kinder Morgan and long January 2016 $32.5 calls on Kinder Morgan. Maxx Chatsko has no position in any stocks mentioned. The Motley Fool recommends Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.